Market Is Trapped – Buyers and Sellers Are Paired Off – Keep Trades Small – Wait For Breakout

Options Trading Strategy - If the market can stay in positive territory I will sell a few bullish put spreads today. I will focus on stocks that have held up relatively well and I will sell February out of the money put options. Again, my size will be small. I have seen a decent bid and it should be able to hold up for the next week and a half. I will be looking for stocks that have relative strength and that are trading above major support levels. The majority of my activity has been day trading. If the market is above the one hour high, buy SPY call options and keep a tight stop. If the market is below the one hour low, buy SPY put options and use a tight stop. Once the momentum is established, it tends to continue. These index options are extremely liquid and they trade in penny wide bid ask spreads so it is easy to get in and out. I also think there is a nice little short in US bonds. Posted 10:30 AM ET - Yesterday, the market shouldered a round of bad news. Profit-taking was fairly light and when support was tested, buyers stepped in. Stocks are rallying before the open this morning and we will see how anxious Asset Managers are to get long at this level. Greece did not tone down its rhetoric over the weekend and France and Germany stood their ground as well. Today, the Greek Finance Minister said that they will not rip up previous agreements. Given that they need to secure a loan from the ECB in the next two weeks, their statements have been bold. Greece feels that if they are kicked out of the EU, the house of cards will crumble. Trade numbers over the weekend were mixed. Germany was strong and China was weak. China's numbers concern me. They are still the growth engine of the world and activity has been slipping at a steady pace. A prolonged decline could reveal credit issues. China has tremendous excess capacity after 20 years of hyper-growth. China's inflation numbers came in light today and many people believe that this will pave the way for PBOC easing. Unfortunately, quantitative easing has not stimulated economic growth. Last week's Unemployment Report was very strong (257,000). Many believe that this will force the Fed to move up their tightening timetable. I'm not overly concerned with this. Yellen has been extremely dovish and she can see how fragile global conditions are. Furthermore, I don't trust the government's big jobs number. Recent economic releases have missed estimates (durable goods orders, GDP, ISM manufacturing and ADP). Domestic growth is stable, but by no means is it robust. Corporate earnings were strong and 70% of companies beat estimates. Guidance for next quarter is cautious. The strong dollar will weigh on profits and it will take a toll on exports. More than 20 states raised the minimum wage and that will also take a bite out of profits (labor is the highest input cost). Like everyone else, I'm sick of reading about Greece. There was a time when investors were sick of hearing about Countrywide Financial and other mortgage lenders. The temptation was to let them fail and the market discounted the ripple effect. The market is either discounting the impact that Greexit would have on credit markets or it is discounting the possibility that the EU will kick them out. I will be closely watching China's economic releases this month. I also expect to see nervous trading ahead of the FOMC (Feb 18th). The market is trapped in a range. If it can close above SPY $206.50, we will challenge the high. If it can close below $204, we will test the 100-day moving average. Anything in between is noise. The news is light and the price action will be choppy. Look for short-term trading opportunities while we are in this range and take profits early. I don't believe we will see any sustained directional moves. Once we breakout/breakdown, we can get more aggressive. . .

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